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19September2017

Nigerian economic performance variables should focus on human development indicators


Whenever there is need to compare living standards that cut across borders, the barometer that first comes to mind is per capita income. However, the heterogeneity of the socio-economic structure and income inequality of most economies, especially the developing ones, questions how suitable it is as a benchmark. If we annualise the 2013 third quarter GDP figure released by the National Bureau of Statistics (NBS), the estimated 2013 per capita income for Nigeria is N253,814.77 (US$1,616.65). This implies that an average Nigerian earns, produces or spends about US$1,616.65 per annum and US$4.4 per day which is within the threshold of the living standard of citizens of other emerging economies. However, the huge income disparity that subsists amongst the citizenry suggests the existence of significantly pronounced classes and makes this figure misleading.

 

High poverty incidence and unemployment despite growing per capita income

In its report on the poverty incidence for 2010 and forecast for 2011, the National Bureau of Statistics (NBS) opined that the incidence of poverty in Nigeria worsened between 2004 and 2010. The number of Nigerians living below poverty line grew from 68.7m to 112.5m (increase of 63.7% in poverty incidence) during the period while the population grew from 139.2m to 158.6m (13.9% growth in population) over the same period.Unemployment figures earlier reported by the NBS corroborated this situation as Nigeria’s unemployment rate grew from 12.3% in 2006 to 23.9% in 2011. Conversely, during the same period, Nigeria’s economy grew strongly at an average annual growth rate in excess of 6.6% making the country the 5th fastest growing economy in the world in 2010 with a 7.87% real growth rate.

The above represents the enigma of growth in the face of high poverty incidence. This is not in line with traditional economic and social theories as well as historical trends. It highlights vividly the structural disequilibrium in the Nigerian economy which has sustained the key productive and high employment sectors below potential while supporting consumerism and rent-seeking.

 

Growing per capita income amid widening Gini coefficient

The real per capita income of Nigerians has trended upward, rising from US$559 or N57,073.9 in 2004 (based on 2000 price and exchange rate level) to an estimated US$1,616.65 or N253,814.77 (annualized real GDP figure as at September 2013), representing a CAGR of 18% in Naira term (13% in US$ term) during the period. At this time, the average population growth rate was 2.6%. At purchasing power parity and assuming the wealth of the nation is distributed equally, the real per capital income figures above suggest that an average Nigerian earns US$4.4 per day in 2013, well above the globally acceptable poverty line. This is however not the case as huge income inequality exists amongst the populace. Nigeria’s Gini coefficient, the barometer used to measure income inequality, is estimated by the World Bank in 2010 to be 48.8%. The fact that 60.77% of the population lived on less than US$1 per day despite the implied value of US$4.4 by the per capita income figure, gives more credence to the estimate above.

A number of reasons could be adduced for the paradox above. Population, which is the denominator in the quotient used to measure per capita income, hides the prevalent income class structure in the per capita income calculation. While the income class layers could be more than two, the 60.77% a-dollar-a-day poverty incidence suggests that less than 40% of Nigerian population consumes over 86% of the national income estimated in 2013. The remaining over 60% shares the balance.

 

Human development indicators may provide better information for policy making

Undoubtedly, using the trends in indicators like GDP per capita, hospitals per capita, food intake per capita amongst others are a good gauge for measuring the development of the overall economy especially as they are about the least subjective barometer for international comparison. However, these statistics may hide the real economic situation of countries and could give provide misleading impression about the wellbeing of a nation.

Focusing on other human development indicators (HDIs) such as the poverty level, access to drinkable water, unemployment rate, and health access indicators would help policy makers at targeting reforms. These measures do not only expand the inclusiveness of strong growth, they suggest sustainable capacity to keep growing while closing the gaps within the classes in the society.

  • Written by The Analyst
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Budget impasse is part of democracy but breaching the debt ceiling should be avoided


On October 1 2013, the government of the United State of America (USA) was shut down due to the failure of the Congress to enact regular appropriations for the 2014 fiscal year. More than 700,000 non-essential employees were indefinitely furloughed without pay while another 1.3 million were required to report to work without immediate pay. Many services were also suspended.

As is the practice in most democratic economies (including Nigeria), the U.S. Constitution requires that all expenditures of federal funds be authorized by Congress with the approval of the President of the United States. The U.S. federal government and the federal budget process operate on a fiscal year cycle running from October 1 to midnight September 30. If Congress fails to pass all of the spending bills comprising the annual federal budget or "continuing resolutions" extending spending beyond the end of the fiscal year; or if the president fails to sign or vetoes any of the individual spending bills, certain non-essential functions of the government may be forced to cease due to a lack of congressionally-authorized funding.

 

Flimsy reason for shutdown

The US government shutdown occurred when the Republican-led House of Representatives included language delaying or defunding the Patient Protection and Affordable Care Act (commonly known as "Obamacare") in their approved budget while the Democratic-led Senate approved continuing funding at current sequester levels with no additional conditions. Political bickering on this and other issues between the House Republican on one side and President Barack Obama and the Senate Democrats on the other led to the budget impasse which threatens massive disruption.

Fighting over an adjustment to an Act that has been passed by the Congress, upheld by the Supreme Court and supported by majority of Americans through a national election appears very flimsy. Countries experience budget impasse from time to time and Nigeria is quite familiar with disagreements between the Presidency and the National Assembly, usually over revenue benchmark and appropriations. However, the reason for the current impasse makes the US look ordinary and not a global benchmark for governance that the country is considered to be.

 

Breaching the debt ceiling is undesirable

As disruptive as the shutdown is for America, breaching the debt ceiling would be catastrophic for the whole world. The US Dollars is the world’s reserve currency; hence its debt is considered as safe instrument and a significant portion of the world’s financial transactions is collaterised by the US government debt instruments. Most sovereign debts are refinanced through the issue of new debt to redeem a mature one. Unfortunately, by October 17, 2013, the US government would have reached its legal borrowing limit and unless the Congress raises that limit, the US government would be unable to refinance its maturing debt and may thus default on the repayment of its debt. This would affect America’s credit worthiness and lower the quality of US government debt as collateral for financial transactions and increase bond yields.

The implication would be dire for countries (especially developing countries) and businesses globally whose borrowing rates are benchmarked on the US government treasuries and debt. Borrowing would become expensive for businesses and economies alike, putting further strain on the global recovery and probably pushing some economies into the deeper end of financial crisis.

 

Step back and fight another day

As advised by “The Economist”, ‘the House Republicans need to get their priorities straight’. Unnecessary political gridlock does not fit American politics and the Republicans should know this, if they want to win the presidency in 2016. They should pass the budget without any unnecessary fight and raise the debt ceiling for the long term (if they can’t remove it completely). And a temporary and short term increase in the borrowing limit will only prolong the uncertainty with implications for global economic growth.

Obamacare is a different approach to the failing health care management system in the US and it is good option to try out. However if Obamacare eventually turn out to be a failure, it would become glaring to the American people and the Republicans could easily repeal it if they win the presidency and the Senate in 2016. For now, the GOP appears to be fighting a lost battle.

  • Written by The Analyst
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